Updated 16.30 11/07/19
The UK government has drafted and published a finance bill today that will introduce a two percent Digital Services Tax. To be introduced in April 2020, the tax aims to win the exchequer two percent of the revenues of any search engines, social media platforms and online marketplaces that generate revenues from UK users.
Many of these types of services are supplied by US companies like Google, Facebook and Amazon and the move was met with concern by industry group techUK.
Associate director for policy, Giles Derrington called the tax “deeply concerning” in an emailed statement, saying that it is not a “smart measure” and runs the risk of making the UK an unattractive investment prospect.
He also criticised the government for publishing the draft finance bill today, thus risking the ire of President Trump as he notes that: “Just today the US Government announced an investigation into France for a similar digital tax plan.”
UK Digital Services Tax and French Similarities
The government in France earlier approved a new tax that will see large technology companies pay a tax of three percent on local revenues.
It will apply to firms with global sales of over £674 million and those that make more than £22.5 million a year in France. The introduction of the tax has been met by criticism from the US and President Trump who – despite his own bitter attacks on US tech companies – sees the taxes as an attempt to neuter US firms.
U.S. Trade Representative Robert Lighthizer commented that: “The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies.”
“The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”
UK Digital Services Tax
Companies gathering online revenues through advertising are firmly in the sights of the government as the proposed tax draft states:
“Revenues are attributable to UK users so far as— (a) in the case of online advertising revenues, the advertising is intended to be viewed by UK users;”
For an organisation to be affected by the digital services tax of 2 percent they must make an annual revenue of £500 million, of which £25 million is taken from UK users.
The finance bill notes that: “It does not matter where companies receiving the revenue are located.”
The draft estimates that the operational cost to create the tax will be up to £8 million, which will be used to create new IT systems and processes, as well as staff and administrative cost.
Giles Derrington of techUK noted that with regards to the UK’s planed digital tax: “At present, the tax could very likely lead to some bizarre outcomes, including increasing costs being passed onto consumers, dis-incentivising investment in R&D and reducing competition. It even risks creating an outcome where UK-based tech firms actually end up paying more tax than their international competitors. It is hard to see how this would be beneficial outcomes for the UK economy or for consumers”.